Faxmatic, Inc., produces memory enhancement kits for fax machines. Sales have been very erratic, with some months showing a profit and some months showing a loss. The company's contribution format income statement for the most recent month is given below:

Sales (13,500 units at $20 per unit)	$	270,000
Variable expenses		162,000
Contribution margin		108,000
Fixed expenses		120,000
Net operating loss	$	(12,000)

Required:
1.	Compute the company's CM ratio and its break-even point in both units and dollars.

CM ratio	%
Break-even point in units
Break-even point in dollars	$

2.	The sales manager feels that a $6,400 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will result in an $86,000 increase in monthly sales. If the sales manager is right, what will be the effect on the company